CEA seeks $150m+ of quake reinsurance with Ursa Re 2023-2 cat bond

The California Earthquake Authority (CEA) is back to reopen the 144a catastrophe bond market during its traditional summer wind season pause in issuance, seeking $150 million or more in earthquake reinsurance protection via a new Ursa Re Ltd. (Series 2023-2) transaction.

The California Earthquake Authority (CEA) is one of the most consistent sponsors of catastrophe bonds in the market, using the capital markets as a complementary source of reinsurance to its traditional program, which is one of the largest in the world.

In total we now have 19 catastrophe bonds listed in our Deal Directory that have been directly sponsored by the California Earthquake Authority (CEA).

This is the CEA’s third catastrophe bond of 2023, having secured $200 million of earthquake reinsurance with an Ursa Re Ltd. (Series 2023-1) deal in April and then $425 million with a Sutter Re Ltd. (Series 2023-1) deal in June.

The CEA renews reinsurance at a number of points throughout the year, with cat bonds typically interspersed as it makes use of both sides of the market, traditional and alternative. The insurance-linked securities (ILS) market also participates in its traditional reinsurance tower, on a collateralized basis and occasionally in private cat bond form as well.

This latest cat bond from the CEA sees the earthquake insurer using its Ursa Re Ltd. special purpose insurer (SPI) in Bermuda, seeking $150 million or more in reinsurance from the issuance of a single Class E tranche of Series 2023-2 notes, we understand from sources.

We’re told that reinsurer Swiss Re is acting as the ceding reinsurer, to front the capital markets for the CEA. So Swiss Re will enter into a retrocessional reinsurance agreement with note issuer Ursa Re, then a reinsurance agreement with the CEA.

The single tranche of notes to be issued will provide the CEA with a $150 million or greater source of California earthquake reinsurance protection, on an indemnity and annual aggregate basis, which is typical of all CEA cat bonds.

The coverage will run across a just over three-year period, to the end of November 2026, with three loss occurrence periods, we are told.

The $150 million of Class E notes could attach when aggregated losses reach $3.024 billion or above during a loss occurrence period and will cover a share of the CEA’s losses across a $500 million layer of its reinsurance tower.

The Series 2023-2 Class E notes that Ursa Re Ltd. will issue are set to have an initial attachment probability of 3.51%, an initial expected loss of 3.28% and are being offered to cat bond investors with price guidance in a range from a spread of 9% to 9.75%, it’s said.

One tranche of the CEA’s last Sutter Re cat bond had a similar expected loss and priced with a spread of 9.75%, so it appears the issuer and bookrunners hope to price this new cat bond at a keener level.

Given this is the first cat bond in the market since July, it will be interesting to see how investor and ILS fund appetite responds.

You can read all about this new Ursa Re Ltd. (Series 2023-2) catastrophe bond from the California Earthquake Authority (CEA) and every other cat bond ever issued in the extensive Artemis Deal Directory.